Captive Insurance Witnessing Growth Amidst Hard Market Conditions
The captive insurance market has experienced substantial growth recently, largely spurred by ongoing challenges in the conventional insurance sector. This was a key takeaway from a panel discussion held at the annual CICA conference in Tucson, Arizona this week.
Businesses are increasingly turning to captives as a viable alternative, the panelists agreed, due to increased premiums and stricter underwriting protocols in the standard insurance market.
Nick Hentges, CEO of Captive Resources, noted the trend: “We’ve been in a relatively hard market, especially for liability insurance. This has certainly pushed more companies to explore captives as a strategic risk management tool.”
However, Robert Pettit, Area Senior Vice President at Gallagher, emphasized the need for a long-term perspective when considering captives. “We can quickly tell whether a client is seeking the cheapest option, or true value,” he said. “Captives aren’t mainly about cutting costs upfront. Instead, they offer ownership and control, making them an actual investment rather than just another premium payment. The goal is to reduce the net cost of insurance over time.”
Steve Norton, Executive Vice President & Chairman of the captive risk practice at Marsh McLennan Agency, echoed this view. “Captives distinguish themselves by offering businesses a pathway to transform their insurance expenditures into an asset,” he stated. “If a CFO realizes they can get $100,000 back in dividends from their captive, they quickly see the financial advantage over simply paying traditional premiums.”
The current market conditions are undeniably driving interest in captives. “Three years ago, my team consisted of just three people,” Norton revealed. “Now, we have ten, and we are still struggling to keep up with the demand. We are seeing significant growth in both group and single-parent captives.”
Anne Marie Towle, CEO of Global Risk & Captive Solutions at Hylant, agreed: “Numerous companies that previously never considered a captive are now exploring their options. While captives aren’t universally suitable, they provide a compelling solution for those with significant volume or unique risks that are difficult to place in the commercial market.”
Despite the growing interest, industry leaders are urging caution against hasty decisions regarding captive formation. “We often receive calls from business owners saying, ‘My friend has a captive, I want one too. How quickly can we set it up?’ But that’s not how it works” Towle said. “It’s important to assess the company’s risk tolerance, risk mitigation strategy, and long-term objectives.”
Pettit added that captives need an initial financial commitment. “This is not necessarily cheap insurance. It may be more expensive initially, but in the long run, businesses can outperform the traditional market by taking a disciplined approach to risk management.”
Norton added that a key part of the process involves educating potential clients. “I probably unsell captives as much as I sell them. If the company only spends $50,000 on traditional insurance, a captive probably would not be a good fit due to setup costs and capital requirements. It’s all about finding the right structure for the right company.”
Despite being competitors, professionals in the captive insurance industry share a strong sense of camaraderie. “We might be competing, but, ultimately, we all benefit from a well-informed market,” Hentges said. “It’s about increasing awareness and assisting businesses in making informed decisions.”
Towle pointed to considerable innovation within the industry. “I enjoy the problem-solving aspect of captives. It isn’t just about insurance; it’s about creating unique solutions and mentoring the next generation of professionals.”
